Global Trade Analysis: introduction to the GTAP modelling framework

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Global Trade Analysis introduction to the GTAP
modelling framework

• Frank van Tongeren
• Trade and development division, LEI

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Outline

• Introduction motivation for GTAP
• Database
• Model
• Some economics
• GTAP organisation

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Motivation for GTAP

• Increasing demand for quantitative analysis of
  global trade issues
• E.g., WTO Doha round, Kyoto agreement, EU
  integration, Regional integration
• Historically analysis has been done in-house in
  a few agencies USDA, FAO, World Bank

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Limitations of Agency-based Projects

• Methodology is often poorly documented.
• Rarely subjected to peer review.
• Data base is treated as a strategic asset and
  therefore not shared with others.
• Projects rarely survive change of administration.
• Unfavorable findings result in termination.

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Limitations of Projects Based in Academia

• Limited financial support.
• Little incentive to invest in data base.
• Tendency to keep model and data until it has
  outlived its usefulness.
• Limited contact with decision makers who are the
  ultimate clientele for much of this work.

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The GTAP Approach

• Publicly funded project, based in academia.
• Data base and standard model
• fully documented
• publicly available at modest cost
• easy to use with regular courses
• accessible to non-modelers.

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Key Resources Data Base

• Philosophy
• Find the best person in the world to do the job
• GTAP as an assembler of information
• Reconciled bilateral trade data and shipping
  margins USDA
• Protection data WTO/WBank/UNCTAD, AMAD
• National data bases national collaborators
• e.g Version 5 EU-15 Input-Output tables, LEI with
  funding from DG-ENVIRON
• Production cycle database 18-24 Months

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GTAP v6 commodities

• Primary agriculture Paddy rice
• Wheat
• Cereal grains nec
• Vegetables, fruit, nuts
• Oil seeds
• Sugar cane, sugar beet
• Plant-based fibers
• Crops nec
• Cattle,sheep,goats,horses
• Animal products nec
• Raw milk
• Wool, silk-worm cocoons
• Natural resource based activities
• Forestry
• Fishing
• Coal
• Oil
• Gas
• Minerals nec

• Manufacturing Textiles
• Wearing apparel
• Leather products
• Wood products
• Paper products, publishing
• Petroleum, coal products Chemical,rubber,plastic
  prods Mineral products nec
• Ferrous metals
• Metals nec
• Metal products
• Motor vehicles and parts
• Transport equipment nec
• Electronic equipment
• Machinery and equipment nec
• Manufactures nec
• Services Electricity
• Gas manufacture, distribution
• Water
• Construction
• Trade

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Additional data on energy use

• Coal, oil, gas, petroleum products, electricity
• Volumes (Mtoe) and prices
• Harmonized and consistent
• Biomass small share -gt not (yet) separate

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GTAP v6 regions

• 87 regions (built from 226 members)
• Economy-wide coverage
• Input-Output tables
• Bilateral trade flows
• Policy data
• Benchmarked to year 2001

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Key Resource a standard multi-region CGE model

• profit maximizing behaviour of producers (input
  restraint)
• utility maximizing behaviour of consumers(budget
  constraint)
• Armington approach bilateral trade
• Computable General Equilibrium (CGE) all markets
  clear simultaneously
• Product markets
• Factor markets (capital, labour, land, natural
  res.)
• Prices and quantities determined by model

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Model structure for one GTAP region
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Economics of production Cost Minimizing Behavior

• Behavioural equations are derived from an
  economic decision problem
• Choose cost minimizing input mix, given the
  technical characteristics of production, and
  given prices
• Cost function C(w, q) min ?wi xi st. q
  f(x)
• ?C(w, q)
• Factor demand ----------- xi(q, w)
  (Shephards lemma)
• ?wi

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Pricing

• Constant returns to scale production function
  meansaverage cost marginal cost
• Competitive pricing at marginal cost.
• Therefore revenue costsZero Pure Profits

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Market clearing

• On all markets we have
• Qd Qs
• Product markets 56 commodities
• Factor markets Land, SkLabour, UnskLabour,
  Capital, Nat resources
• Savings Investment Global bank

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Small example EU sugar reforms
change in sugar output under EBA and EU reform

• EBA LDCs get quota duty free access to EU
• EU reforms
• Beet quota down,Internal support price down

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EU sugar reforms welfare effects
Trade diversion effect
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Modifications to standard GTAP model

• Network members add new model developments
• For example
• imperfect competition and increasing returns to
  scale
• international technology spillovers
• Modelling specific policies, e.g EU CAP
• Projections in time
• Dynamic extensions (GTAPDyn)
• Modelling of agricultural supply
• GTAP-E energy model

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GTAP organization

• Core funding from international consortium, 18
  international and national agencies, e.g
• WTO, World Bank, UNCTAD, USDA/ERS, OECD,
• MIT, USEPA ...LEI (member since Nov. 96)
• Each represented on the advisory board
• Headquarters Purdue Univ., Tom Hertel

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Growth of GTAP Consortium

• Five international OECD, WB, WTO, UNCTAD
• 11 national Australia, Denmark, Germany,
  Netherlands, Japan, US
• Two non-profit

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GTAP organization (II)

• Open network of contributors
• more than 350 course alumni
• annual global conference
• Linked through WWW for distribution of database,
  software and publications www.gtap.org

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Summary

• GTAP relatively unique in economics, but similar
  to consortia in sciences
• Success of project traced back to courses
• Consortium key to long term viability provides
  , but also key data inputs and much needed
  direction
• Modest contribution by many agencies provides
  long run stability
• Network externalities

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There are many ways to get involved

• Short course attendance usually first step
• Purchase database and Gempack software
• Attend annual GTAP conference (approx 150
  specialists in gobal economic analysis meet)
• 2003 The Netherlands, The Hague
• 2004 USA, Washington DC
• 2005 Germany, Lübeck

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